RF's Financial News

Sunday, December 25, 2016

“Markets react to people,
and sometimes people are a little strange.”Alan Greenspan

Thoughts:

Regardless
of how you celebrate the holiday, I think we would all agree that the ‘spirit’
of the season is one of sharing. In the
spirit of the holiday, allow me to share my ‘Tip Jar’ with you.

Leadership Tips:

Say ‘No’
sparingly but strategically.

Managing with Care and Gratitude
improves creativity.

Failing early and often is a
recipe for success.

Always Position
yourself next to the smartest person in the room.

Learn to use Sleep to help solve your most difficult problems.

Work Only
on your top 5 problems, and toss the rest away.

Ask more questions
before giving answers.

Always Prioritize:
Budget, Decision-maker, and Timeframe.

Know which 2 out of 3 to
emphasize: Cheaper, Better and/or Faster.

Stock Tips for 2017:

Twitter’s
difficulty
in being acquired stems from its foundation: money-losing, niche,
non-growth, tarnished brand – with a part-time CEO?

Ai will become the new
shiny object / buzz-word.

Uber will not IPO because
they will not have to.

Stock
Markets and Interest Rates will NOT go much higher.Valuations are stretched, corporations
continue to invest in buybacks over growth, and our FED is all talk no
action.

Corporate
Buybacks will have another record year.

Unemployment will NOT top 5%.The labor market continues to decline along with
the number of truly qualified applicants for the skilled positions.

Oil will drop under $40 a
barrel again as OPEC’s planned production cuts will not stop: “Drill, baby,
drill”.Fracking introduced a new
age of energy efficiency and oversupply.

Tax Changes will NOT happen.Even Republicans (although controlling
both houses) will not be able to come together on anything meaningful.

Federal Deficits will soar.Any stimulus spending is
simply a gift to conservative voters, and won’t be paid for with growth or
budget cuts.

Millennials will come of age.Household formation is at a 50-year low, and the
average 30-something makes less than their parents – but that is what
happens when you take out over $20,000 in debt and graduate into the worst
recession in 100 years.The metrics
have nowhere to go but up.

Health Tips:

-Sitting is the new smoking.Sitting for five hours is the same as smoking
a pack of cigarettes.

-It’s not how long you sleep, but rather that you get up and
go to bed on a Regular Schedule.

-Every Year you
delay your retirement - you reduce your incidence of Alzheimer's by 3%.

-Dieting is all about manipulating
the bacteria in your GI tract.Dieting
is as much about what you are DOING – as it is about what you’re EATING.

Happy
Holidays to everyone.Hug your children,
kiss your spouse, pick up the phone and call someone you love.It's the most important thing you can do.

The Market:

“2016 was the year
everybody got it wrong.”

2016
taught us that the mood on both sides of the Atlantic was based upon a sense
that governments were NOT looking after their own.The ensuing governmental anger was exploited
by outlier politicians like Donald Trump, Nigel Farage in the UK, and Beppe
Grillo in Italy.All three of these
‘populists’ (a) used unusually blunt language, (b) explained complex issues in
simple terms, and (c) often sided with the underdog. Their ideologies
were NOT often effectively challenged with facts or tempered with reason.In fact, their positions were often
anti-factual, anti-intellectual, and anti-science.

And
the end of 2016, TV’s talking heads are taking us ‘Back to the Future’.

They’re
talking about investing’s ‘new paradigm’ – where earnings don’t matter.Hedge funds are openly comparing their
investing styles to that of 1999 – only it will end ‘differently this time.’

And
as for it ending ‘differently this time’ – let’s do some math:

The P/E
Ratio (price-to-earnings)
of the Russell 2000 is approximately 237.At the height of the Internet boom the
NASDAQ’s highest P/E levels were only 175.And days after it achieved that level, the market began its 75%
plunge.

The CAPE
Index (created
by economist Robert Shiller) is now over 27.That level has only been achieved 3
times: (a) during the 1929 crash, (b) prior to 2000 tech mania, and (c)
during the 2007 housing bubble.

Investor
sentiment is cheering for DOW 20,000, but remember: (a) 2012 when cheers
were urging gold to go to $5,000/once – right before it plunged to
$1,100/ounce, and (b) 2014 when cheers were moving oil toward $150/barrel
– right before it plunged below $50/barrel.

Retail
sentiment indicators such as: RSI, the AAII (American Association of
Individual Investors) survey, and the Investors Intelligence survey
continue to reflect the belief that stocks are not going down.These beliefs always happen when the
market is near extremes – just like in 1999.

And Insider
Selling is heating up in the banking, industrial goods, and energy
sectors.According to Ben Silverman
(Director of Research at InsiderScore), "It's interesting that the
sectors that seem poised to benefit the most from the incoming
administration's policies are leading the insider selling charge."
According to Vickers Weekly Insider, there were almost 5 insider
sale transactions for every 1 purchase last week, and that is bearish in
anybody’s book.The firms leading
in Insider Sales were:United
Rentals, Automatic Data Processing, Athena Health, ON Semiconductor and
Targa Resources.

So
be safe and continue to play the hand that you’ve been dealt – because it’s
still an adventure out there.

Tips:

The
fact that ALL of the above trend lines are moving in lock-step scares the heck
out of me, and brings me to my ‘Tip of the Week’ – the mining sector.The mining sector has been pummeled in the
last month, with the Market Vectors Gold Miners ETF (GDX) dropping 15.4% since
early November.Eventually a bottom will
be established, and these stocks will bounce.On Friday, someone made a hefty bet that this bounce will happen soon by
purchasing 35,000 GDX January monthly, out-of-the-money calls for $0.63
each. That is a $2.2m investment in pure option premium, and requires
that GDX rally almost 7% within the next month for this trade to
break-even.If GDX can recover (half of what
it lost in November), this position will make $3.5 million for every $1 GDX
rises above $20.63.

To
follow me on Twitter.com and on StockTwits.com
to get my daily thoughts and trades – my handle is: taylorpamm.

Please
be safe out there!

Disclaimer:

Expressed
thoughts proffered within the BARRONS REPORT, a Private and free weekly
economic newsletter, are those of noted entrepreneur, professor and author,
R.F. Culbertson, contributing sources and those he interviews. You
can learn more and get your free subscription by visiting: <http://rfcfinancialnews.blogspot.com>.

Views
expressed are provided for information purposes only and should not be
construed in any way as an offer, an endorsement, or inducement to invest and
is not in any way a testimony of, or associated with Mr. Culbertson's other
firms or associations. Mr. Culbertson and related parties are not
registered and licensed brokers. This message may contain
information that is confidential or privileged and is intended only for the
individual or entity named above and does not constitute an offer for or advice
about any alternative investment product. Such advice can only be made when
accompanied by a prospectus or similar offering document. Past
performance is not indicative of future performance. Please make sure to review
important disclosures at the end of each article.

Note:
Joining BARRONS REPORT is not an offering for any investment. It represents
only the opinions of RF Culbertson and Associates.

PAST
RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS
THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING
ALTERNATIVE INVESTMENTS (INCLUDING HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER
VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS AND OTHER SPECULATIVE
INVESTMENT PRACTICES MAY INCREASE RISK OF INVESTMENT LOSS; MAY NOT BE SUBJECT
TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES,
AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN
ONLY TO THE INVESTMENT MANAGER.

Alternative
investment performance can be volatile. An investor could lose all or a
substantial amount of his or her investment. Often, alternative investment fund
and account managers have total trading authority over their funds or accounts;
the use of a single advisor applying generally similar trading programs could
mean lack of diversification and, consequently, higher risk. There is often no
secondary market for an investor's interest in alternative investments, and
none is expected to develop.

All
material presented herein is believed to be reliable but we cannot attest to
its accuracy. Opinions expressed in these reports may change without prior
notice. Culbertson and/or the staff may or may not have investments in any
funds cited above.

-Our President
blames another nation for election tampering, and vows to get even,

-Our
President-elect is getting this much pushback,

-The battle
between white-hats & black-hats within the CIA, FBI, and NSA is so open,

-And our electors
are getting 4,000 e-mails a day asking them to toss the election to Hillary?

Last Friday, the White House
gave a live press briefing covering their beliefs on Russia’s tampering with
our Presidential election, and how they are going to retaliate.This is alarming because it is NOT some
alternative news site writing a blog post, but rather our CIA and White House
vowing retaliation. This wasn't even something designed to make Donald
Trump look bad.On the contrary, there
is something going on here. After all, our markets were supposed to
crash:

-When BrExit hit
– but within days we were at all-time highs,

-When Trump won
the Presidency – instead we made new highs, and

-When Italy voted
NO – but we proceeded to hit another all-time high.

The level of uncertainty
surrounding what and who to believe is higher than when Lehman Brothers
collapsed, and as high as it was immediately following 9/11.

I understand that the rally
in equities has been inspired by pro-business proposals from President-elect
Trump – including tax cuts and looser regulations.These proposals are expected to stimulate
economic growth, increase interest rates (and inflation), and push bond yields
past their 2014 highs.Some experts are
even comparing Donald Trump to Ronald Reagan.And while their incoming policies may bear a strong resemblance –
unfortunately the economy and the markets they inherited are vastly
different. The table below is courtesy of Mike Underhill of Capital
Innovations:

As we morph from a
governmental run society, back to a more business focused one – realize that
the role of our Central Banksters will decline, and capitalism / freedom will be
rejuvenated. However, along with this
rejuvenation comes a much wider range of potential outcomes, and a much larger
band of uncertainty. This range wouldn't be so bothersome if we weren't
already in the seventh year of an economic recovery, the stock market wasn’t at
all-time highs, and interest rates weren’t coming off seven and a half year
lows.

Santa – let’s put that rally
on hold for the time being, shall we?

The Market:

Historically speaking the
week before Christmas generally sees relaxed, downward action in the
markets.After that, we often get a
Santa Claus rally from the day after Christmas into the first week of
January. Our last December rate increase (2015) caused a market sell-off
that lasted well into February 2016. I think that January and February
2017 selling makes sense as well, but with a twist.I think (with these last remaining weeks) we
nurse the market toward DOW 20k into the New Year.And then I suspect that once the DOW gets its
20k hat, we will see a rotation out of the DOW and S&P and into the
NASDAQ.

DoubleLine Capital's Jeff Gundlach is calling for the market fall to begin around Inauguration Day (Jan. 20)). He also cautions that a 10-year
Treasury yield in the 2.75% to 3% area – would create problems in the financial
and liquidity arenas.

Many pundits are calling for
precious metals, and healthcare to be the highest performing sectors in
2017.The reasons for a rise in precious
metals include:

-Inflation:U.S. and Chinese policies will cause
inflation, and result in fund flows into gold.If President-elect Donald Trump cuts taxes, adds an estimated $7.2T to
the federal debt, promotes additional spending on Social Security,
Medicare/Medicaid, and infrastructure – higher inflation will follow.The Chinese have initiated spending $2T on
infrastructure, and in the past 3 months’ zinc and copper prices have risen by
25%.

-Demand:In 2017, Chinese and Indian jewelry demand
will continue to recover.Jewelry demand
was weak in 2016 due to several non-repeatable factors: (a) curbs placed on
Chinese gold imports, (b) tax hikes on Indian gold imports, and (c) a currency
conversion crisis in India.Hong Kong
retailers are already reporting a 25% rise in gold jewelry sales.

-Price:The paper price will have to come closer to
the physical price for gold.Two weeks
ago, the price for a physical ounce of gold in India was $3,000 / ounce (vs.
the $1,200 paper price).The physical
price of an ounce of gold is currently $50 higher than the paper price on the
Shanghai gold exchange.These will
converge over the coming weeks.

On the equities side of
things, nobody is wearing the DOW 20k hat just yet, but it’s not from lack of
trying.The markets have tried three
times this week to get up and over 20k, but each time reality came into
play.For example, Honeywell and other
large industrials warned that their earnings were going to miss estimates, and
then guided their earnings estimates lower for the next several quarters.

I think we will see DOW 20k
sometime after Christmas, and before the second week of January.However, when we hit 20k – I will begin to
short this market.Earnings season
starts January 11th, and the reality surrounding our economy will
begin to sink in.This hopium rally has
been fun, but I think we will see quite the correction.

To all, I wish you the very
best Christmas.Enjoy the season, your
families – and the feelings that they bring.

Tips:

Bank of America (BAC):A
month ago BAC was trading at $17.It has experienced a 35% move higher (to $23) over the past
month.The stock is expected to
move at most $1.80 (either higher or lower) over the next 30 days.BAC’s $6 (3 standard deviations) move
over the past 30 days had a less than 1% chance of statistically
occurring.I’m looking for a
decline in BAC, and am buying the (Delta 90) January $25 PUT options or
the February $26 PUT options.In
either of these cases, the risk vs reward is dramatically in your favor.

10-Year Treasury Notes (TXN):The interest rate on the U.S. 10-Year Treasury note (TXN) is
currently 2.61%.Over the past
several weeks our bonds (/TN) have been sold hard, and recently the seller
has surfaced.The seller is
China.Japan is now our largest
international U.S. Bond holder.The
interesting part of the story is that the Chinese sold our U.S. bonds
(right after the election) to support their own currency, pay off their
own debts, and plug holes in their own banking system.They are NOT buying U.S. stocks with
those funds.Bonds are ‘ripe’ for a
bounce here, and if we get that bounce in bonds – look for stocks to stop
moving higher.

DOW Transports ($DJT):The
DOW transports have rallied from 8,000 to 9,500 in the past 30 days – and
what has changed in transportation?Nothing.As the transports
begin to pull back (and they started last week), they often act as a
leading indicator for the general stock market.

To follow me on Twitter.com
and on StockTwits.com to get my
daily thoughts and trades – my handle is: taylorpamm.

Please be safe out there!

Disclaimer:

Expressed thoughts proffered
within the BARRONS REPORT, a Private and free weekly economic newsletter, are
those of noted entrepreneur, professor and author, R.F. Culbertson,
contributing sources and those he interviews. You can learn more and
get your free subscription by visiting: <http://rfcfinancialnews.blogspot.com>.

Views expressed are provided
for information purposes only and should not be construed in any way as an
offer, an endorsement, or inducement to invest and is not in any way a
testimony of, or associated with Mr. Culbertson's other firms or
associations. Mr. Culbertson and related parties are not registered
and licensed brokers. This message may contain information that is
confidential or privileged and is intended only for the individual or entity
named above and does not constitute an offer for or advice about any
alternative investment product. Such advice can only be made when accompanied
by a prospectus or similar offering document. Past performance is
not indicative of future performance. Please make sure to review important
disclosures at the end of each article.

Note: Joining BARRONS REPORT
is not an offering for any investment. It represents only the opinions of RF
Culbertson and Associates.

PAST RESULTS ARE NOT INDICATIVE
OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN
WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS
(INCLUDING HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER VARIOUS RISKS INCLUDING THE
FACT THAT SOME PRODUCTS AND OTHER SPECULATIVE INVESTMENT PRACTICES MAY INCREASE
RISK OF INVESTMENT LOSS; MAY NOT BE SUBJECT TO THE SAME REGULATORY REQUIREMENTS
AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING
INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

Alternative investment
performance can be volatile. An investor could lose all or a substantial amount
of his or her investment. Often, alternative investment fund and account
managers have total trading authority over their funds or accounts; the use of
a single advisor applying generally similar trading programs could mean lack of
diversification and, consequently, higher risk. There is often no secondary
market for an investor's interest in alternative investments, and none is
expected to develop.

All material presented
herein is believed to be reliable but we cannot attest to its accuracy.
Opinions expressed in these reports may change without prior notice. Culbertson
and/or the staff may or may not have investments in any funds cited above.

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